Canada’s TSX 60 is also performing strongly, with 21-day Twiggs Money Flow indicating medium-term buying pressure. Expect a test of the 2008 high at 900. Reversal below support at 855 is unlikely, but would warn of a correction.
Dow breaks 17000
Dow Jones Industrial Average broke medium-term resistance at 17000 — after reaching 16000 in November last year. Expect retracement to test the new support level at 16950/17000. Mild divergence on 21-day Twiggs Money Flow warns of weak selling pressure. Reversal below 16750 is unlikely, but would indicate a correction.
* Target calculation: 16500 + ( 16500 – 15500 ) = 17500
The Nasdaq 100 is on a bit of a tear, with rising 21-day Twiggs Money Flow indicating medium-term buying pressure. Respect of the rising trendline would suggest a rally to 4000*. Penetration of the trendline is unlikely, but would warn of a correction.
* Target calculation: 3700 + ( 3700 – 3400 ) = 4000
238 Years After The First Revolution, Is It Time For A Second?
From Jerry Bowyer:
To determine whether the framers [of the Declaration of Independence] and their principles would cause us once again to break from a central political authority one must first get into the head space of the founders. Their way of thinking, though alien to modern political philosophy and so much the worse for modern political philosophy, is clear and cogent:
There are certain ideas which are self-evidently true. One of those ideas is that we are created without legal primacy or inferiority with regard to one another. Another idea, which is just obviously true to people whose rational faculties are operating properly, is that the rights to life and liberty and the pursuit of a prosperous life which is what the word ‘happiness’ meant in 1776 are not alienable, that is they cannot have a lien placed on them by any other persons, not even representatives of the state.
Not only is government denied the authority to put a lien on and repossess those rights, but it is further required to protect those rights. And in fact, the protecting of those rights is the only reason that government should exist in the first place! And not only is it necessary for government to protect these rights, but its use of power to do so is still only just if it also involves the consent of the people whose freedom and property are being protected. Further and this is shocking, even to modern ears, when governments move from protecting those rights to injuring those rights, the people are allowed to erase the authority of the government.
….No amount of banning or inciting can change the facts. 238 years ago the principles of the Declaration found that the central government had lost the right to rule and called on the people to withdraw allegiance to it. Is that the case now?
Read more at The July 4th Question: 238 Years After The First Revolution, Is It Time For A Second?.
What a difference a week makes
Summary:
- S&P 500 advances toward 2000.
- China respects primary support.
- ASX 200 rallies.
Market sentiment shifted significantly to the bull side after some solid employment numbers. There are still concerns about low interest rates across the US and other major economies, but these policies are likely to continue — with corporate earnings remaining buoyant — for the foreseeable future. And as Eddy Elfenbein observed: “…market corrections solely due to valuation are fairly rare. If the market’s dropping, earnings usually are too.”
The S&P 500 is advancing towards the psychological barrier of 2000. Weekly (13-week) Twiggs Money Flow recovered above its descending trendline and Daily (21-day) is trending higher, signaling medium-term buying pressure. Expect retracement at the 2000 level, but short duration or narrow consolidation would indicate continued buying pressure and another advance. Reversal below 1950 is unlikely, but would warn of a correction to the rising trendline.
* Target calculation: 1900 + ( 1900 – 1800 ) = 2000
Buoyed by Fed monetary policy, the CBOE Volatility Index (VIX) is at extremely low levels, indicative of a bull market.
The Shanghai Composite Index respected primary support at 1990/2000 and rising Twiggs Money Flow indicates medium-term buying pressure. Follow-through above 2080 would indicate another test of 2150. Further ranging between 2000 and 2150 is expected — in line with a managed “soft landing”. Breach of primary support is unlikely at present, but would signal a decline to 1850*.
* Target calculation: 2000 – ( 2150 – 2000 ) = 1850
The ASX 200 is headed for another test of resistance at 5550 while an up-turn on 13-week Twiggs Money Flow suggests medium-term buying pressure. Twiggs Money Flow has been descending for some time, indicating long-term selling pressure, but failure to breach the zero line suggests buying support and completion of another trough above zero — with a rise above 20% — would confirm the resumption of long-term buying pressure. Breakout above 5550 would offer a long-term target of 5850*. Reversal below support at 5350 is unlikely, but would warn of a down-trend.
* Target calculation: 5400 + ( 5400 – 5000 ) = 5800
Gold rallies as inflation expectations rise
Overview:
- Treasury yields are recovering
- Inflation expectations rise
- The Dollar weakens
- Gold rallies
Interest Rates and the Dollar
The yield on ten-year Treasury Notes found support at 2.50 percent. Recovery above 2.65 would suggest the correction is over, offering a medium-term target of 2.80 and long-term of 3.00 percent. 13-Week Twiggs Momentum below zero continues to indicate weakness. Reversal below 2.40 would signal a decline to 2.00 percent* — confirmed if yield follows through below 2.40 percent.
* Target calculation: 2.50 – ( 3.00 – 2.50 ) = 2.00
Long-term inflation expectations, indicated by 10-Year Treasury Yields minus 10-Year Inflation-Indexed (TIPS) Yields below, turned upward after 12-month CPI jumped to 1.8 percent in May, but are still range-bound between 2.0 and 2.50 percent.
The Dollar Index continues to head for primary support at 79.00 after retreating below 80.50. Respect of zero by 13-week Twiggs Momentum warns of continuation of the primary down-trend. Recovery above 80.50 is unlikely at present, but would suggest an advance to 81.50.
Gold
Gold is testing medium-term resistance at $1325/$1330. Breakout would signal a test of $1400. Recovery of 13-week Twiggs Momentum above zero hints at a primary up-trend; breakout above $1400 would confirm. Retreat below $1280 is unlikely, but would warn of the opposite; confirmed if support at $1240 is breached.
America’s Ukraine-Policy Disaster | The National Interest
From James W. Carden:
….A second unintended consequence of our involvement with Ukraine is the emergence of Russian hypernationalism. Little attention seems to be given to the effects that our facilitating an anti-Russian regime in Kiev has had on the political landscape in Russia; Russians now, more so than at any other point in the last quarter century, are under the spell of one man. According to the widely respected Levada Center, Vladimir Putin’s approval ratings stand at 80 percent. While respected analysts like the Carnegie Endowment’s Lilia Shevtsova seem to believe that this level of support is unsustainable, the numbers may point to a new and troubling phenomenon: that a rather prosaic Russian nationalism is in the process of transmogrifying into Russian hypernationalism. If this is so, a war in East-Central Europe becomes all the more likely, because as the University of Chicago’s John J. Mearsheimer has noted, “hypernationalism …is the belief that other nations are not just inferior, but dangerous as well, and must be dealt with harshly, if not brutally…[it] creates powerful incentives to use violence to eliminate the threat.”
Read more at America's Ukraine-Policy Disaster | The National Interest.
Full Employment and the Path to Shared Prosperity | Dissent
Great summary of the current political gridlock by Dean Baker and Jared Bernstein:
There are many policies that can reduce inequality, but there is none as straightforward conceptually and as difficult politically as full employment. The basic point is simple: at low rates of unemployment, the demand for labor allows workers at the middle and bottom of the wage distribution to achieve gains in hourly wages, annual hours of work, and thus income.
Levels of unemployment are not the gift or curse of the gods; they are the result of conscious economic policy. The decision to tolerate high rates of unemployment is a choice. It is one that has enormous implications not just for the millions of people who are needlessly unemployed or underemployed but also for tens of millions of workers in the bottom half of the wage distribution whose bargaining power is undermined by high unemployment.
It is pretty obvious that low unemployment would enhance wage growth amongst middle- and low-income workers. But the policies to create low unemployment are not as clear:
- Raising inflation to lower real interest rates would not get strong support in many quarters. It would seem that you are manipulating market signals to dupe business investors to act in a fashion that may not be in their long-term best interest.
- Infrastructure spending is the key to a sound recovery, but beware of raising public debt to fund anything other than productive assets that can generate a market-related return (to service the debt).
- The trade deficit is a big part of any solution. We need to penalize currency manipulators like China (Japan before them) for buying US Treasurys to suppress their exchange rate and undermine US manufacturers.
- Job sharing is not a long-term solution, but it does enable unemployed workers to retain skills that would otherwise be lost.
Overall, an excellent summary of what needs to be done. But it omits one vital piece of the puzzle. How do we get politicians and interest groups to act in the best interest of the country rather than their own?
Read more at Full Employment and the Path to Shared Prosperity | Dissent Magazine.
Ukraine should sell its gas pipeline to stabilize the region
From OilPrice.com
Gas supply, and the threat to that supply for Europe, is what has forced Russia to move aggressively on multiple fronts to defeat Ukraine in its efforts to modernize and westernize its economy, its future, and its way of life.
So, how to start the liberalization process? Ukraine has argued that its gas transportation system is a strategic asset. Business-minded people take issue with this interpretation, which ignores the commercial potential of the pipeline system. Now that we have come full circle in a long-brewing Ukraine-Russia gas war, perhaps the pipeline should be considered “strategic” — if not in the way the Ukrainian authorities have long understood. The pipeline system, worth $20 to $30 billion, can indeed play a strategic and tactical role in resolving Ukraine’s crisis with Russia, but only if it’s sold off.
Ukraine should sell 50 to 75 percent of it for cash to a consortium involving the EU, U.S. and Russia and operated by a U.S. business enterprise, preferably based in Houston. This can only happen if Russia agrees to remove troops and other proxies in eastern Ukraine and then works with Ukraine to secure the border and cease all low-intensity conflict efforts, including on the ground, and in cyberspace and the trade arena….
Read more at EconoMonitor : EconoMonitor » 5 Things Ukraine Must Do to Become Energy Independent.
EconoMonitor » China, Not Piketty, Explains ‘Confused Signals’ in U.S. Asset Prices
From Benn Steil & Dinah Walker:
As for bond prices, China’s central bank holds the key.After more than three years of steady appreciation, the RMB has declined over 3% this year – erasing the past year’s rise. Driven by the Chinese government’s desire to re-juice failing economic growth, RMB depreciation has naturally been accompanied by an increase in China’s foreign exchange reserves.China usually allocates about 40 percent of its foreign exchange reserves to Treasuries; so far this year, however, its official holdings of Treasuries have actually declined. What explains this? Given that China comes under pressure from the U.S. Treasury and Congress whenever it appears to be pushing down its currency, China is almost certainly disguising its Treasury purchases by holding them in Belgium.
Read more at EconoMonitor : EconoMonitor » China, Not Piketty, Explains ‘Confused Signals’ in U.S. Asset Prices.
Explaining Richard Koo to Paul Krugman | SNBCHF.com
George Dorgan writes:
….Prof. Steve Keen’s and Richard Koo’s recipe is to increase public debt, when the private sector is de-leveraging and to reduce public debt when the private sector is leveraging. According to Keen, the Americans are currently doing the complete opposite of what they should do. They should continue reducing private liabilities, but they should increase public spending.
The Fed wants the average American to spend, even deficit spending, while the state is doing austerity. According to Keen, the current increase of private US debt could lead to a new recession.
Read more at Explaining Richard Koo to Paul Krugman, to Austrian Economists and the SNB #Balance Sheet Recession.